The Indian Government's recent announcement to allow foreign multi-brand retailers to participate in retail joint ventures (including holding a majority stake) in India paved the way for an exciting era of new foreign direct investment.
However a mere two weeks after the announcement, the Government, led by Prime Minister Manmohan Singh (a key driver of the reforms) was forced to back track on the proposal. Reports indicate this is largely due to pressure from some of the Government's coalition members, opposition MPs and Indian trade unions.
The reversal is a major set back to foreign direct investment in India's massive retail sector, which is estimated to be worth approximately US$470 billion. Currently, foreign multi-brand retailers are only permitted to establish joint ventures in India at a wholesale level. The new reforms would have meant that major foreign multi-brand retailers (such as Walmart and Tesco) would have been permitted to establish a retail joint venture with a local Indian company. The reforms would have also permitted single brand foreign retailers to own 100% of their operations in India, rather than only up to a 51% holding in the joint venture.
For the time being, foreign multi-brand retailers wishing to invest in India will have to continue to invest in joint ventures at a wholesale level. Single brand retailers may only hold up to 51% of the joint venture with a local Indian partner.
Middletons' India Group will continue to monitor developments to changes in India's foreign direct investment policy and will keep you updated.
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